Citizens Board of Governors Meeting Report: October

Recently, Citizens Property Insurance Corporation (“Citizens”) Board of Governors (“Board”) held a meeting to receive updates from committees that have met recently.   To view the complete agenda, click here.

The meeting was called to order by Chairman James Malone, with a quorum of Board members in attendance.  Also in attendance were:

• Citizens’ Chief Financial Officer (“CFO”) Sharon Binnun
• John Forney from Citizens’ Investment Advisor, Raymond James
• Citizens’ President Scott Wallace
• Citizens’ Senior Vice-President of Underwriting Paul Palumbo
• Citizens’ General Counsel Perry Cone
• Citizens’ Executive Vice President of Corporate Operations Susanne Murphy

Chairman Malone delivered began the Chairman’s Report with a discussion of the current financial market volatility.  

Mr. Forney gave an update from the October 22 Finance and Investment Committee meeting, noting that despite market turmoil, Citizens has fared relatively well because of its diversified, conservative investment portfolio. 

In 2007, Citizens successfully restructured 40 percent of its liquidity into more stable investments.  Citizens now has over $8 billion in invested assets, only one percent of which are in danger of depreciation.  To view the complete Finance and Investment Committee Meeting Report, click here.

To view the Financial Statement Report for the month ended June 30, 2008, click here.  To view the management analysis, click here.

Ms. Binnun gave the CFO’s Report, after which Board members inquired if there have been any significant financial happenings since the June 30 reporting period ended.  Ms. Binnun stated that the number of premiums written to the Florida Hurricane Catastrophe Fund spiked in June.  Since that time, the market has continued to soften.  Ms. Binnun also stated that preliminary estimates of Tropical Storm Fay losses are $64 million, and that the full figures will be available for the next Board meeting.  To view the premium written data table, click here. 

Mr. Wallace stated that, unfortunately, as the market sours, there is an increase in instances where people who have had their homes foreclosed will take everything of value from the house, including the kitchen sink, flooring, and even windows.  Citizens has started increasing the activity of its fraud investigative unit to combat this problem.

Updates from the October 22 Audit Committee meeting were given.  As reported, the Office of the Internal Auditor has hired an Audit Manager and has four pending audit projects.  To view the complete Audit Committee Meeting Report, click here.

Mr. Wallace delivered the President’s Report, which included updates on the following:

• September 2008 Operations and Underwriting Production Totals
  • Citizens’ call center exceeded its answer rate goal and service level based on half-hour intervals for each quarter in 2008.
• Citizens wind mitigation history
  • The Florida Office of Insurance Regulation’s requirement that all residential lines insurers file new windstorm mitigation discounts in 2007, essentially resulted in a duplication of previous mitigation credit amounts. Citizens submitted its filings and began offering the new mitigation credits in April 2008 for personal residential risks, and then in September 2008 for commercial residential risks. The financial impact of these doubled credits include:
    • As of July 31, 2008, utilizing the original filed credit amounts, 46 percent of Citizens policyholders received an average credit of 30 percent, which translated into $470 million of total premium being credited back to policyholders
    • As result of the doubled credits and higher percentage of policyholders applying for mitigation credits, 2009 projections reflect that 50 percent of Citizens policyholders will receive an average credit of 42 percent, which translates into $640 million of total premium being credited back to policyholders
    • Because Citizens was required to implement the new, higher mitigation credits and was unable to adjust rates accordingly because of the statutory rate freeze, Citizens staff believes that this will result in rates that are inadequate for the risk covered for some policyholders
• Enterprise risk management
  • Mr. Wallace summarized the enterprise risk management (“ERM”) business strategy.  ERM, used to manage the variety of strategic, operational and financial risks a company confronts, will enable Citizens to assess risk across the corporation, instead of on a per-project basis. Citizens’ ERM will be led by a to-be-determined senior officer, whose tasks primarily will include responsibility for risk management, compliance and quality assurance.  No Board action was requested.
• Citizens’ Mission Review Task Force (“Task Force”)
  • Mr. Wallace updated Board members on the 11-member Task Force’s first meeting, which was held on October 10.  During its inaugural meeting, the Task Force received updates on Citizens’ operations, the Florida Hurricane Catastrophe Fund, and the state of the reinsurance market.  To view a summary report of the meeting, click here.  Three additional meetings have been scheduled prior to January 31, 2009, when the Task Force’s mandated final report is due to the Florida Legislature.

Following the Task Force update, Board members expressed concern about Citizens’ rates not being actuarially sound, prompting robust discussion on Citizens’ goal to become actuarially sound and return to its original status as the insurer of last resort.  No Board action was requested.

Board member William Corry presented a report on the October 22 inaugural Information Systems Advisory Committee meeting during which committee members approved a timeline for implementation of a new software system.  

The Board voted to approve the recommended timeline.  To view the complete Information Systems Advisory Committee Meeting Report, click here.

Board member Earl Horton, Jr. reported on the Claims Committee.   As of September 2008, Citizens has paid out a total of $605 million in claims payments.  As of October 9, 4,345 claims from Tropical Storm Fay had been received.  Of those, 3,487 were closed, 270 remained open, and 214 were reopened.  To view the Claims Committee Report, click here.

Mr. Palumbo gave an update on the Underwriting Department.  The Underwriting Department has developed a new type of wind-only coverage, which will affect 330,000 personal residential policyholders.  Citizens will begin writing wind-only policies on the same system used for multi-peril policies, beginning with new business effective on, or after, December 1, 2008. 

New eligibility requirements for roofs with less than three years of useful life also will be included in the new coverage.  To address coverage gaps, Citizens has developed an alternative policy coverage approach that will limit exposure while providing some insurance protection to consumers.  This alternative approach would offer coverage for the actual cash value of the roof and contents for homes that do not meet the new roofing guidelines.  In order to qualify for this coverage, a licensed roofing contractor or inspector must provide certification that the roof has more than three years of useful life.   Properties with roofs that have no remaining useful life will continue to be ineligible for a Citizens wind-only policy.  Staff recommends that the appropriate filings for actual cash value coverage be submitted to the Florida Office of Insurance Regulation.

Board member Carlos Lacasa expressed concern about the amount of disclosure presented to consumers in the new wind-only coverage, saying that he would like to see the full consumer plan before Citizens moves forward with the plan.

Board members voted to approve the actual cash value coverage filings, with Mr. Lacasa voting against.

Susanne Murphy from Citizens updated Board members on recent Policyholder Forums held in South Florida, saying that the response received was overwhelmingly positive.   To view the complete Market Accountability Advisory Committee Meeting Report, which includes a Policyholder Forum Update, click here.

The Board Consent Agenda was approved with no discussion.  To view the Consent Agenda, click here.

The meeting was then adjourned.

 

Should you have any questions or comments, please do not hesitate to contact Colodny Fass.

 

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